Profits from ethylene may be capped in Asia in 2011 as production rises in China

20-Oct-10

As ethylene production in China jumped to the highest level in 8 months, profit from making ethylene may drop to US$100/MT in Asia in 2011, as per Bloomberg. Profits are expected to be capped by January, as new plants in Asia ramp up utilization rates. China is buying less ethylene as it boosts domestic production after a 42% jump in oil-refining capacity in 5 years. China started 3 ethylene plants with a capacity of 1 mln tpa each in 2010, at Tianjin, Zhenhai and Dushanzi. Though the plants are being operated at reduced rates, production was 9.25 mln tons in August, the highest level since January, according to data from China Economic Information Net. This will largely impact ethylene producers in South Korea and Taiwan that count on China to buy 80% of their ethylene exports. H2-2011 will be the bottom for the petrochemical industry, including cracker margins. Most of the crackers in Korea and Japan could even face shutdown if the ethylene spread gets too low. The net return from producing ethylene by putting naphtha through a cracker is US$150/MT. It was US$250/MTin July, after a fire led to a shutdown at Formosa Petrochemical Corp.’s No. 1 cracker in Taiwan.